Bermuda's two main banks have followed in the footsteps of the world's banks and cut base rates - which will cut the cost of borrowing as well as reduce the savings rates on the Island.

Bank of Bermuda and Bank of N.T. Butterfield and Sons Ltd. both slashed rates following Monday's half point cut from the Federal Reserve and the European Central Bank.

Bank of Bermuda and Bank of Butterfield cut the Bermuda dollar base rate by 0.50 percent to 4.50 percent - a cut which will come into effect from Friday.

The rate will affect demand loans, mortgage loans and overdrafts in Bermuda dollars as well as savings in both US and Bermuda dollars.

"Our decrease is in response to the decline in market rates that was triggered by the Federal Reserve Board's action yesterday to lower short-term interest rates," said Danny Fox, general manager of Retail Clients Services at Bank of Bermuda. "Bermuda's economy is clearly influenced by other world economies, and the bank continues to align our local interest rates to those prevailing in the US. "Everyone is aware of the tragic circumstances under which this move was made in the United States and we are feeling the effects here in Bermuda. These are obviously unpredictable times, but this will allow our customers to better manage their obligations with respect to loans and variable mortgages."

Bank of Bermuda's Pass Book Bermuda dollar will now stand at 1.75 percent, the US dollar at 1.5 percent. US Dollar Statement Saving will go to 2.25 percent, but Mr.. Fox added: "Because our Bermuda Dollar Statement Savings is an important account for local savers, however, we will be reducing it by only 0.25 percent to 3.25 percent." Richard Ferrett, Executive Vice President and Chief Financial Officer of Bank of Butterfield said: "This is the lowest level that the Bank's Bermuda Dollar Base Rate has been since its inception in April 1994. We are also reducing our US Dollar Prime Rate to 6.00 percent effective the same date."

Mr. Ferret added: "Whilst our Bermuda Dollar Strata Savings rates have remained unchanged since February 5, 2001, since which time the Bank's Bermuda Dollar Base Rate has already been reduced by 0.75 percent we have decided that these rates too require reducing to reflect current market conditions."

Mr. Ferrett said that this will only be by 0.50 percent, however, and not the entire 1.25 percent reduction which he said will benefit customers borrowing at rates linked to the Bank's Bermuda Dollar Base Rate.

He said: "As a result, the interest rate paid on Bermuda Dollar Strata Savings accounts for balances up to $24,999 will change to 3.25 percent and balances of $25,000 or more will attract an interest rate of 3.75 percent."

Butterfield's Bermuda Dollar Passbook Savings rate will reduce by 0.50 percent, to 1.25 percent and bank's US$ Strata and Passbook Savings rates will also be reduced by 0.50 percent.

Butterfield will also be giving notice to customers with variable rate mortgages of a further decrease in their interest rate of 0.50 percent and loans directly linked to the Bank's Bermuda Dollar Base Rate will get a 0.50 percent reduction in their borrowing costs from this Friday.

Customers with personal loans and mortgages at fixed rates of interest will be unaffected by the change.